Tagging Retail Items at the Source

By Jennifer Zaino

Retailers and suppliers are working together to achieve supply chain and internal benefits.

In October 2016, at RFID Journal's RFID in Retail and Apparel conference and exhibition, Bill Connell, Macy's senior VP of logistics and operations, announced that his company plans to have 100 percent of all items in every store RFID-tagged by the end of next year. To achieve this goal, the retailer is asking all of its product vendors to identify goods with passive EPC ultrahigh-frequency (UHF) RFID tags. "If you go to our vendor standards manual," Connell told attendees, "we are now published as requiring source tagging in all categories of business."

Since 2014, Moods of Norway's clothing suppliers have been RFID-tagging all garments sold by the 14 stores that the Norwegian retailer operates. The suppliers, located at 30 to 40 manufacturing sites throughout Asia and Europe, apply Checkpoint Systems Zephyr 2 EPC UHF RFID labels before shipping goods to Moods of Norway's distribution center in Norway. Once the goods arrive at the stores, they are placed in the back room or on the sales floor. The company gains no value from reading tags when products arrive at stores, because shipping orders from the DC are typically very accurate.

In 2015, global coat and outerwear manufacturer Herman Kay began RFID-tagging all garments it makes for Macy's and Hudson's Bay Co. stores at its factory. "We do what the customer wants, to support them," says Richard Haig, the company's CIO and CTO. But Herman Kay is also achieving internal benefits. The company worked with SML Group to deploy an RFID solution at its factories to monitor outgoing orders, and at its DC receiving and shipping docks. Workers at the DC also use handheld readers to confirm the correct products are picked for a particular shipment.

Since 2015, global athletic apparel company lululemon has been tagging and tracking most of its garments and accessories, including yoga mats and blocks, from the point of manufacture in more than 30 factories throughout 15 countries, using Avery Dennison's RFID printers and cloud-based printing service. Lululemon's DC workers tag any goods that are received or reworked at the distribution center without tags attached. The company also deployed an RFID system at all of its stores to track products' movements as they arrive at those stores, are placed on display on the sales floor and are eventually sold. The solution has increased the company's inventory accuracy to 98 percent, says Jonathan Aitken, lululemon's RFID program director, which is one reason that the firm's revenue is up—its stores know what goods are available in the back room to be restocked on the sales floor and purchased.

In 2013, Decathlon began a global rollout of an radio frequency identification solution to track goods throughout its supply chain—from factories to warehouses to stores. At present, RFID is improving efficiencies at all Decathlon facilities—1,030 stores and 43 warehouses. The French sporting goods retailer has tagged 1.4 billion items—90 percent of its products are tagged at the point of manufacture, says Jean-Marc Lieby, who became the company's RFID project coordinator at the beginning of 2015 (see Decathlon Scores a Big Win With RFID).

It's a well-known fact that item-level tagging can boost inventory accuracy in stores from an average of 65 percent to more than 95 percent, and that high inventory accuracy can reduce out-of-stocks, increase sales and enable an omnichannel shopping strategy. There's a growing realization from retailers that they are lost without a strong omnichannel strategy and a way of achieving it. "You can't do omnichannel without super-high-level inventory accuracy," says Carl Rysdon, Checkpoint Systems' VP of sales, "and the only means with which to do that right now is with RFID."

Most retailers that have adopted RFID for inventory management are tagging items at their stores or DCs. But RFID-tagging items at the source of manufacture has long been the goal for retailers. Now, as a growing number of retailers adopt the technology for inventory management—and tag more merchandise categories—they are working with their suppliers and brands to tag items at the point of manufacture.

While performing RFID-tagging at stores or retailers' DCs works for proof-of-concept or pilot initiatives, it is not a sustainable or cost-effective strategy for full and potentially transformative implementations, according to Bill Hardgrave, the dean of Auburn University's Harbert College of Business and the founder of the RFID Lab. Tagging has to move upstream as far as possible, he says, "ideally as close to the point of manufacture as we can."

For retailers, source tagging is a lower-cost labor model and improves efficiencies, says Randy Dunn, Tyco Retail Solutions North America's sales leader for inventory intelligence. But it also improves the quality of information that gets encoded in the tag, he adds. "There is a process set up for adding data to a tag," Dunn states. "When you try to write information to individual item tags on an ad-hoc basis in-store, the quality varies."

The challenge has been to get suppliers to comply. Meanwhile, brand owners are discovering the benefits of tagging their items at the source. Next up? Sharing supply chain data to improve sales.

Supplier Tagging
Suppliers have already cleared some hurdles, Hardgrave says. GS1, for example, developed the Tagged Item Performance Protocol (TIPP) standard, which addressed the issue of conflicting retailer tag requirements and performance.

At Macy's, the process of working with suppliers for source tagging involves a face-to-face sit-down with each vendor and presenting a business case explaining why this is necessary. "It's a pretty high level of commitment," Connell said at the RFID in Retail and Apparel event, but from Macy's vantage point, there's also greater acceptance and understanding of potential upstream benefits to suppliers' distribution networks. That includes the ability to validate shipments to customers, instead of having to rely on audits from retailers that would potentially reveal discrepancies resulting in charge-backs.

German casual apparel company Marc O'Polo is RFID-tracking products across its supply chain, from its distribution center to 86 of its stores and 18 factory outlets throughout Europe. The retailer encodes RFID tags at its headquarters and sends them to its manufacturers, which simply apply the stickers to hangtags before goods are shipped to the company's DC. Products received at Marc O'Polo's retail and factory stores are identified via RFID readers, and are reconciled against the shipping notice as inventory records are updated. "With each new opening of any retail or factory outlet store, we are installing RFID automatically," says a company spokesperson. "There are also two franchise partners now taking part with RFID." But, she acknowledges, while everyone is taking part in the RFID effort, every party isn't really using the technology.

The quality of supplier deliveries to Moods of Norway "is better now than what it used to be" before the firm had its clothing suppliers begin RFID-tagging all the garments they manufacture, says Hans Petter Hübert, the company's retail director. "Now it's easier for us to discover mistakes," he states, "and the level of control we achieve with RFID has a positive effect on our supply chain." He believes the majority of manufacturers for the apparel industry will, at some point, put in place their own RFID infrastructure. The more retailers and brands that adopt RFID, he notes, the more sense it makes for professional suppliers to control their deliveries using the technology.

Brand Tagging
Most brand owners are driven to RFID by retailers and are not inclined to take on tagging on their own for internal gains, Hardgrave says. But the good news, he adds, is that "more and more national brands are starting to tag for a variety of retailers." When tagging items for just one retailer, Hardgrave explains, they might divert the products aimed at that partner for tagging somewhere along their supply chain. But as more retailers ask their vendors to get on board, and as the percentage of these vendors' products that must be delivered to customers with RFID tags attached increases, they reach a tipping point at which it simply makes more economic sense to tag everything for all customers instead of diverting and tagging only specific inventory, he says.

"Brand owners like Herman Kay move to source tagging as the percentage of volume that requires RFID reaches a substantial portion of their inventory," says Dean Frew, SML Group's CTO and SVP of RFID solutions, which enabled that brand's deployment. "Brand owners reach a tipping point at which it is more efficient to just tag 100 percent of their product rather than segregating inventory by RFID and non-RFID. There are numerous brands that are tagging 100 percent of their product, even though only 40 percent to 70 percent of their shipments require it."

At RFID Journal LIVE! 2016, Herman Kay's Haig said its implementation of RFID at its primary distribution site "was a real eye opener, because we have been distributing our products to retailers for three generations and thought we were pretty good. However, we're now going from 85 percent to 99 percent correct shipments." The company expected to quickly recoup its RFID investment by eliminating charge-backs.

As tipping points are reached, a virtuous cycle occurs, Hardgrave says: Retailers that hadn't asked for their items to be tagged begin thinking about using RFID in their stores since they are already receiving some tagged products. Then, he adds, they begin asking other suppliers to tag their products as well. "It creates a snowball effect from a tagging perspective," he says, "and lots of different categories are now becoming part of that virtuous cycle."

As the virtuous cycle expands, so do the potential logistics wins for retailers, including better support of their omnichannel efforts. "A retailer can use RFID inventory information for a store and have a high level of confidence that they can drop and order to a store for it to be 'picked and shipped' from the store, or send a customer to a store to pick up a product that has been reserved for that customer," Frew says. "The only way this could be done in the past was if the store inventories were severely bloated to create a costly confidence of filling the order. 'Picking to the last item' omnichannel strategies are achievable by using RFID in stores."

Another logistics benefit, whether it is a vertically integrated or open supply chain, is taking "some of the variants out of the concept of proof-of-delivery," Tyco's Dunn says. "There are a lot of clever things you can do with item tagging—for example, building a family of tags in some kind of shipping notice, and if you read one you can assume you have them all." Retailers that can capture shipment data in their DCs or at a store's back door can immediately begin to act on any issues they discover. Data capture for this application is different from scanning items in stores with handheld scanners, he says. Tunnels give RFID readers a chance to look longer and harder at tags, and to improve the quality of the data set. "There's a lot of interest in that," Dunn adds.

The retail logistics ROI model also has, in its benefits column, a move to a much more efficient replenishment model from the DC to the store, Frew notes. "By having a highly accurate, demand-driven view of inventory in the store," he says, "the store can 'ask' or 'pull' from the DC vs. the DC just 'pushing' inventory based on guesses of what is needed." If implemented, this pull model can reduce inventory by 10 percent to 15 percent across all stores, he reports, making it "the largest ROI element of all when realized."

Brand owners also are latching onto the idea that instituting RFID tagging at the point of manufacture, and then leveraging RFID through their supply chain, can help protect their goods against diversion or counterfeiting. They can use the technology to authenticate a particular item and validate 100 percent of deliveries through sightless auditing of their inbound goods, Checkpoint's Rysdon says. Currently, he adds, they can only audit a small percentage. Rysdon also cites the benefit of eliminating retailer charge-backs for inaccurate shipments—and he notes that brand owners, like retailers, can use dual-purpose RFID-EAS (electronic article surveillance) for loss prevention within their DCs, as well as their own retail stores.

Data Sharing
Historically, Hardgrave says, there has not been a strong trend of data sharing among supply chain participants, from brand owners to logistics companies to retailers, and it's still very one-off. "Ultimately," he says, "they have to share EPC data." That information could be used, for example, to determine whether merchandise defects led to a drop in sales, and to provide complete visibility of products to enable an omnichannel strategy (see Beyond Inventory Visibility). But more work has to be done, he adds, to help both parties involved feel comfortable that they are sharing such information securely and reliably. "We're starting to see a lot of good discussions around that," he states. "It's going to be an extremely important part of the value equation."

Checkpoint's Rysdon expects sharing supply chain data will be a growing focus for all parties, and that it can help create stronger collaboration between retailers and suppliers. Macy's Connell believes analytics based on RFID data is not only about discovering what it means when something enters the fitting room and doesn't sell, but also about what could be learned when an item sells every time it goes into the fitting room, or if it isn't brought into the fitting room at all. The industry now can have the advantage of leveraging accurate versus inherently inaccurate data, he says, and that will have an effect on merchandise planning and execution.

But for data sharing and analytics to occur across the supply chain, Hardgrave says, it takes all parties agreeing to go beyond collapsing their EPC serialized data into UPC category- or product-level data, which strikes at the heart of RFID's value in terms of delivering visibility into the individual item level. "The shift from UPC to EPC in a retailer system is huge, because it requires a change in the master data, impacting everything from order information to point-of-sale systems," Hardgrave says. "When this shift occurs, all trading partners will have to make the shift to enable reliable data exchange across the entire supply chain."

Retailers also must stop viewing RFID deployments as distinct projects, separate from other business initiatives (see Retailers Must Reframe Their Thinking). Some retailers, Hardgrave says, still claim they have omnichannel staring them in the face but lack the time for RFID projects. That's looking at it the wrong way.

In contrast, retailers like Macy's and Moods of Norway are looking at it the right way. "Now, RFID is a very important part of how we manage our business," Connell said. It's been embraced at the company's senior leadership level, he added, and store managers view it as a critical part of how they execute day in and out. "It can't go away."

Thanks to RFID, Moods of Norway recently launched an omnichannel click-and-collect program, which joins its ship-from-store program. An in-store online shopping program will soon debut. Customers who cannot find the items they seek at the store can purchase those products for next-day delivery. "Ship-from-store, as implemented so far, pays for our whole RFID project many times as compared to sending [items to customers] from the main warehouse," Hübert says, "because of the higher service levels you achieve by pooling the inventories across channels."

It used to be that at the end of the season, Moods of Norway's main warehouse was empty and stores were full. "Being able to have our full inventory available for all online customers is a no-brainer," Hübert states. "You can decrease inventory levels and still have much better service levels for online customers. You can't do it without RFID. You could never open up store inventory for customers without having the accuracy of RFID."